At the end of last year, the Government announced an extension to the £1million Annual Investment Allowance (‘AIA’) limit until 31 December 2021.

This allowance was originally going to drop from £1,000,000 to £200,000 with effect from 1 January 2021, however, businesses now have 10 months to make use of this important Capital Allowance.

The AIA provides 100 per cent tax relief for capital expenditure on qualifying plant and machinery.

The Government are hoping the change will stimulate investment in UK manufacturing but this will be a welcome change for many UK businesses who are looking to invest in new equipment, plant, machinery or in refurbishing commercial buildings throughout 2021.

Businesses must plan now if they intend to invest and claim this tax relief within the next year, as the amount that can be claimed might not be £1million, where the company’s financial year-end straddles 31 December 2021.

For example, for a company with a 31 March 2022 year-end, the amount of AIA available would be £800,000 (nine months of the £1million limit and three months of the £200,000 limit).

If you would like help to take full advantage of this extension to the AIA temporary increase, please get in touch with our expert tax team today.